Home Deposits: What You Need to Know

Making a home deposit can be a tricky business if you don’t know what to expect. Knowing exactly how much you’ll spend and why it’s even necessary to make a deposit are essential to the process. 

If you want to know more about home deposits, you’re in luck. They’re not too complicated once you understand all of the requirements and price calculations. 

Lenders and agencies want you to live in a house just as much as you do. Working together, you’ll be able to find the home of your dreams when you pay the deposit.

Throughout this article, you’re going to learn the following details:

  • Why home deposits are necessary to buy a house
  • How much your home deposit might cost
  • Home deposit assistance program guidelines and enrollment
  • How to save up for your home deposit

What Is a Home Deposit and Why Is It Required?

A home deposit is the amount you must pay to a bank to receive a loan for a house. 

Unfortunately, home deposits are going to be a requirement for any house that you want to buy, meaning that there’s no way to avoid them. 

You have to build trust with the bank for them to consider giving you a loan, and a deposit shows you’re in it for the long haul. 

If a home deposit wasn’t required, then someone with terrible credit could move in and be unable to pay the loan back. Even though they’d eventually be removed from the house, it’s still an unwanted hassle.

The deposit gives credibility to your trustworthiness. When you pay a home deposit, the bank is aware that you’re serious about making your payments. 

Home deposits also show that you have the money required to live in the house. When money gets deposited, the banks can see that you have the potential to make mortgage payments. 

You should see a home deposit as a benefit since it guarantees your residence at the location.

Another benefit of these home deposit requirements is that you already paid a portion of the house off. By paying a percentage in combination with the bank or other entity that you’re making payments through. Not only does this give you a great sense of pride as a homeowner, but it’s also important for legal purposes.

How Much Does a Home Deposit Usually Cost?

Home deposit costs range in price for two reasons:

  • If you can use an assistance program or earnest deposit, then you can pay less.
  • If you want to pay more than necessary, the sky’s the limit.

However, you can expect about a 20% deposit to secure a loan. This also allows you to avoid certain fees and insurance. 20% of the total cost of the house might seem like a lot, but it’s not too bad if you can use special programs mentioned later on in the article.

For example, a simple calculation shows that a house priced at $300,000 will require a $60,000 deposit. Keep in mind that there are always taxes and such involved with any house payment. Unfortunately, this also includes home deposits.

Two huge factors also determine the exact percentage of your home deposit.

Debt-to-Income Ratio

The first factor is your debt-to-income ratio, which simply compares the money that you owe on other loans (such as car payments and so on) to your annual income. If you owe $2000 a month in debt and you make $3000 a month, it’s highly unlikely that a loan company will want to do business.

You can quickly improve your debt-to-income ratio by paying off past debts or increasing your income. For example, simply capping off old credit card payments can make a huge difference.

You should avoid getting involved in other investments as well, including vehicles, expensive surgical procedures, and other debts that’ll take a while to pay off.

Credit Score

The second factor is your credit score. The importance of starting to build credit at a young age cannot be stressed enough. If you have a great salary and debt-to-income ratio, but you have bad or no credit at all, you probably won’t score a deal. Your credit score is not only determined by payments made on time, but also credit history.

Here’s a bonus tip: Try to keep your credit card usage between 10% and 20% of the allotted amount. If your credit card limit is $5,000, you should try not to exceed $1,000 at any given time.

If you’re having trouble with the average rate of 20% on a home deposit, check out the next section for additional assistance. 

What is a Home Deposit Assistance Program and How Do I Enroll?

Location, income, and several other factors will determine if you’re eligible for a home deposit assistance program

These programs come in the form of low to zero interest rates on the deposit, a rare chance of a gifted grant, and forgivable loans. They’re perfect for anyone who fits the requirements.

Many home deposit assistance programs require that you purchase a home within the given location. They’ll usually separate the location by individual houses, streets, or parts of the town that you live in. Not all cities have it, but it’s a fairly common practice.

You must also fit within the proper income level. If you make too much money, most assistance programs won’t lend a helping hand. They’re specialized for low-income people who have the proper credit and other desirable financial traits. There are also home-buyer education courses that can increase your chances of eligibility.

Houses that cost too much money are almost always out of the question. Each home deposit assistance program has a limit, so feel free to contact them to see if your price is too high. 

You should also put your own money toward the deposit rather than looking for assistance with the whole thing. This will dramatically increase your chances of qualifying for a program.

When you’re going through a home deposit assistance program, you can expect to pay as little as 1% to 2% of the total price of the house. Using our example of a $300,000 house, this would be as low as only $3000. Compared to a $60,000 deposit, it’s not too bad at all! 

Keep in mind that you’ll still have to pay all of the money eventually through loans with interest.

Savings Tips for Home Deposits

The cost of a house might already seem like a headache. Still, you can’t forget about the repairs, interest, utilities, and other fees that come with it. 

This means that you’ll have to start saving for a house for many years in advance. Most future homeowners save for about 2 to 3 years, sometimes even more, before looking for a house.

Try to save money by reducing your ‘extra’ spending. This includes extra clothing that you don’t need, high-priced restaurants, and even less vacationing. In the end, it’ll be well worth the sacrifice when you’re sitting in your new house!


Here are the key points you should take away from this post:

  • Home deposits are usually 20% of the house’s price. 
  • They’re required to build trust and give you partial ownership.
  • You can try assistance programs based on income level, debt-to-income ratio, and more.
  • Save money for a home deposit by reducing ‘extra’ spending on unnecessary shopping and vacations.


D. Hahn

DIY guru, dad, husband, blogger. When I'm not creating life hacks I'm teaching my kids how to fix stuff after their dad breaks it.

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